The combined costs of building out a 5G network and meeting its debt obligations proved too much for DISH Network Corp. alone, but it may be achievable for DISH and EchoStar Corp. together.

The two companies, which split in 2008, plan to recombine in an all-stock deal valued at about $2 billion. The proposed merger brings together DISH's fledgling 5G wireless business and its pay TV satellite service with EchoStar's satellite communications business. It also gives DISH access to EchoStar's balance sheet.

The merger announcement comes as the highly leveraged DISH is finding capital raising increasingly difficult — and expensive — to obtain.

DISH has spent billions of dollars on spectrum and hardware for its fledging 5G network in recent years, causing the company's debt levels to balloon to $24.31 billion in the second quarter. As the company's debt levels were rising, its pay TV and wireless businesses were shedding customers, resulting in lower earnings. This left DISH with a total debt/EBITDA ratio of 10.4x, according to S&P Global Market Intelligence. Generally, a ratio below 3x is considered healthy.

In comparison, EchoStar, with its much smaller debt load and steady recurring EBITDA, ended the second quarter with a leverage ratio of 2.6x.

Opening up borrowing capacity is essential for DISH. The company not only needs to fund the remainder of its network buildout, it also faces looming debt maturities over the next several years.

Thanks to the pending deal, DISH may not need to borrow as much as it would have on its own. In addition to getting access to EchoStar's cash flow, DISH and EchoStar believe that with their combined assets, they can limit their cumulative capital expenditures to $2 billion in 2024 and 2025.

The projection for 2024–25 spending marks a major step down from earlier expectations for DISH. The company has thus far spent $5.1 billion on its wireless network buildout, or about half of the $10 billion that executives previously estimated it would cost to complete the network.

– See DISH's detailed offerings. – Read the merger press release.

DISH and EchoStar Chairman Charlie Ergen said during a call with analysts that the $2 billion figure includes "the lowest level of what it would take for us to reach our milestones ... with the FCC."

While DISH met the Federal Communications Commission's June 2023 deadline for building out its network to cover 70% of the population, the company faces another deadline in mid-2025. By then, it needs to cover 75% of the areas where it holds spectrum licenses.

Ergen said he would eventually like to get closer to the original $10 billion in spending to "have the robust network to compete against the incumbents."

But the executive acknowledged the need to slow spending in the near term.

"You only can do what you can do, and we're not going to stretch the balance sheet to do that if that's not the right business plan," Ergen said.

As the controlling shareholder of both companies, Ergen's support for the deal means no further action by DISH or EchoStar shareholders is required to approve this transaction. The merger, which remains subject to regulatory approval, is expected to close in the fourth quarter.